Friday, April 15, 2011

Coal's Arch (ACI) (NRP) (YZC) (BTU) Trade Mixed

Coal companies have been performing somewhat volatile of late, depending on specific results for each company, even though the overall sector has been doing well recently. Firms like Arch Coal, Inc. (NYSE:ACI), Natural Resource Partners (NYSE:NRP), Yanzhou coal mining Co. (NYSE:YZC) and Peabody Energy Corporation (NYSE:BTU) closed mixed on Thursday, as the market looks for short-term direction.

Like any sector, coal companies, even within the high-demand industry, still won't be carried solely by the robust market demand.

Even so, approximately 40 percent of global electricity production comes from coal, and that could rise in the years ahead, as coal consumption is expected to increase at a rate of 2.5 percent annually over the next 20 years, according to Research and Markets.

It could even be more than that, as evidenced by the 5 percent increase in 2010, said the EIA. It adds that 2011 coal consumption should remain about level, and in 2012 should grow by between 2 to 3 percent.

JPMorgan (NYSE:JPM) also recently said coal prices are up over the last year, but are still below the highs attained before he financial crisis in the latter part of 2008, suggesting room to move higher, although the health of the global economy will play a role there.

Coal is still the major fuel for electricity production. Global coal consumption, approximately 6.7 billion tons in 2006, is set to reach close 10 billion tons in 2011.

China produces about 70 percent of its electricity from coal and demand there continues to grow. Demand for coal to fuel power plants will climb to 1.4 billion tons by 2015, according to China Huaneng Group Corp.’s Chief Economist Wu Dawei.

So when you hear the next report attempt to downplay the role of coal, don't believe it. It's as needed and in demand as ever, and similar to the oil peak predictions, is pretty much a joke to say coal is peaking, not taking into account the huge amounts of coal being discovered in China, and other places, while extraction methods have been improved.

Many coal companies will shine, but they still need to be judged by their individual merits and not expect the ongoing coal demand imply all of them will be winners pulled up by the broader sector.

Peabody Energy Corporation closed Thursday at $65.76, falling $0.58, or 0.89 percent. Yanzhou Coal Mining closed at $37.08, gaining $0.49, or 1.34 percent. Natural Resource Partners ended the day at $33.96, dropping $0.22, or 0.64 percent. Arch Coal closed at $33.35, down $0.12, or 0.36 percent.

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